United Airlines to buy USAir

$11.6 billion deal would create giant on East Coast routes

Pilots may oppose sale

May 24, 2000|By Robert Little and Rona Kobell | Robert Little and Rona Kobell,SUN STAFF

US Airways, the nation's sixth-largest airline and the dominant carrier in the Baltimore-Washington market, has agreed to be purchased by industry giant United Airlines, in a deal that would further expand the country's largest carrier and tighten its grip on the Northeast market.

US Airways officials told the heads of the airline's employee unions yesterday evening that United plans to buy the Arlington, Va.-based carrier, according to a source who attended the meeting and spoke only on condition of anonymity. The total deal reportedly is valued at about $11.6 billion in cash and debt.

A United spokesman could not be reached last night and a spokesmen for US Airways would not comment on the proposed deal, which is expected to attract significant anti-trust concerns since it would expand the country's largest carrier and create by far the largest airline on the East Coast.

But two sources within US Airways' labor unions, who spoke on condition of anonymity, said labor leaders were briefed on the deal by company President and Chief Executive Officer Rakesh Gangwal and Chairman Stephen M. Wolf yesterday evening.

The combined airline would become the top carrier at both Washington-Dulles International Airport and Ronald Reagan Washington National Airport, and would be the No. 2 airline at Baltimore-Washington International Airport, behind Dallas-based Southwest Airlines.

The New York Times wire service reported last night that United Airlines has promised not to raise fares or lay off any of US Airways' 45,000 employees.

Word of the proposed deal spread quickly among US Airways' unionized work force yesterday.

"If you're a stockholder, it's great news, but from the labor standpoint we don't know what to think," said Ernest Anderson, local chairman of the International Association of Machinists at BWI.

"If there's going to be a merger, I think United is the best company to do it with. But they're in contract negotiations with their unions right now, and that's a hard time to try to buy somebody."

The boards of UAL Corp. and US Airways Group Inc. have approved the deal, which will create an airline behemoth with 6,500 flights a day and hubs on both coasts, the Wall Street Journal reported on its Web site yesterday, citing sources familiar with the deal. In contrast, the world's No. 2 carrier, American Airlines, offers 3,600 daily flights. United flies more than 570 jets to more than 130 destinations in the United States as well as 25 other countries. US Airways flies more than 390 aircraft to nearly 110 airports.

If the acquisition is approved by shareholders and government regulators, United will have hubs in seven American cities from Washington, D.C., to San Francisco, and employ 145,000 people. The acquisition represents the first merger of two large U.S. airlines since a wave of consolidation in the 1980s, and analysts said United's new strength would force other airlines to consider deals.

The combination would allow millions of travelers in the Northeast -- long the company's weak spot in the United States -- to tap into its vast network of flights to the Midwest and West Coast and, on partner airlines, to Europe and Asia.

According to the New York Times wire service, UAL said it would divest many of US Airways' routes at Ronald Reagan National Airport near Washington and sell them to Robert Johnson, a member of the US Airways board and the founder of Black Entertainment Television. Johnson plans to operate a new airline with those planes, employees and routes.

That sale, which will not include the lucrative shuttle service between Washington, New York and Boston, is intended to satisfy regulators who might become concerned about market concentration in the Washington area.

United agreed to pay $60 a share for US Airways, a 128 percent premium over US Airways' $26.3125 closing price yesterday.

The merger consummates a flirtation that continued on and off for much of the second half of the 1990s, much of it overseen by Wolf, who was United's chief executive in the early 1990s. United backed away from a deal in 1995 after its powerful pilots' union opposed it.

Executives involved in the negotiations, who spoke on condition of anonymity, said objections from UAL's pilots might prove difficult again.

The pilots' union, which is represented on UAL's board, is likely to announce today that it opposes the transaction.

"The pilots will not be fully on board," one executive said. "Integration of seniority lists is a particularly difficult issue for the unions, and the issue exists now, as it did in 1995."

UAL employees, who own 55 percent of the company, have three representatives on the board, two from the pilots' and machinists' unions.

According to the corporate bylaws, at least one of the two union representatives must approve this sort of transaction.